Exam 4 Accounting

a financial plan that managers use to coordinate a business’s activities with its goals and strategies-> a formal statement of a company future plans

budget

why budget?

for planning, directing and controlling

establishing specific goals

planning

executing plans to achieve those goals

directing

comparing actual results with goals

controlling

lots of options for budgeting

zero based budget, static budget, flexible budget, strategic budget, operational budget and continuous/rolling budget

requires managers to justify all revenue and expenses each new period— a fresh start approach that doesn’t consider the prior period

zero based budget

a budget prepared to reflect one level of sales volume

static budget

a budget prepared to reflect various levels of sales volume

flexible budget

budget reflecting the long term plans of a company (3-10) years

strategic planning

budget reflecting the short term financial plan of a company used to coordinate activities to achieve short term goals (1 year or less)

operational budget

an operational budget that perpetually plans 12 month into the future

continuous/ rolling budget

What the budget is focused on (operating, cash, capital, etc.)

budget considered

How long the budget covers (short-term, medium-term, or long-term).

budget horizon

a set of budgeted financial statements and supporting schedules for the entire organization

master budget

… a complete plan for the entire company that combines all smaller budgets (like sales, production, and expenses) into one overall financial plan for a specific period — usually a year.

master budget

the master budget begins with a…and ends with the…

sales budget and budgeted balance sheet

operating budget has…

sales budget, production budget, COGS + (dm, dl,MOH budgets) and SG+A budget

show how the company plans to make income

operating budget

Financial Budgets has…

cash budget, budgeted I/S and budgeted B/S

show how the company manages cash, investment and overall financial position

financial budget

the starting point, estimates the amount of sales revenue expected for a period

sales budget

sales budget=

budgeted sales in units x expected sales price per unit

based on sales budget, estimates the # of units to be produced

production budget

units to produce=

budgeted sales (unit) + desired ending inventory-beginning inventory

estimates the amount and cost of direct materials to purchase to meet the production needs for the period

direct materials budget

estimates the amount and cost of direct labor to support the production budget

direct labor budget

estimates the variable and fixed manufacturing overhead needed to support the production budget (also calculate the POAR)

manufacturing overhead budget

if we know the amounts to be spent on DM, DL, and MOH, we can estimate…

COGS

integrates information from the DM, DL, and MOH budget to estimate COGS based on company’s projected sales

cost of goods sold budget

…. shows the estimated cost of the products the company expects to sell during a period.

cost of goods sold budget

knowing budgeted sales also allows us to prepare the…

selling and administrative (SG+A) expense budget

estimates the company selling and administrative expenses needed to meet projected sales

selling and administrative expense budget

…shows the expected costs of running the business that are not directly tied to making products.

A selling and administrative (S&A) expense budget

integrates all operating budgets and the capital expenditures budget to estimate cash receipts and cash payments for the period

cash budget

… is a plan that shows how much cash will come in and go out of a business during a specific period.

a cash budget

3 sections in a cash budget

cash receipts (cash ins)
cash payments (cash out)
short term financing

revenue is booked when …, but sometimes cash is received in a…

earned, later period (A/R)

expenses are booked when…, but sometimes cash is paid in…

incurred,  later period (A/P)

cash receipts for current period=

current cash sales + current collections of A/R

a budget prepared for various levels

flexible budget

budget prepared for one level of sales volume

static budget

companies compare their … performance to their … performance

actual, budgeted

a difference between an actual amount and a budgeted amount is called a…

variance

some of the variance represents difference in revenues and cost for…

actual units sold

manufacturers often use…

standard cost systems to develop budgets

the price, cost, or quantity that is expected under normal conditions

standard

an accounting system that uses standards to estimate product costs (allows company to determine how much a product should cost)

standard cost system

a measure of what the input should cost (cost of dm, cost of dl)

rate standards

a measure of how much of the input (lbs of material number of dlh) should flow into the manufacturing process

efficiency standards

a measure of how well the business manages the costs of materials and labor

rate/price variance

a measure of how efficiently the business uses materials and labor

quantity/ efficiency variance

actual cost is less than the standard cost

favorable

actual cost exceeds the standard cost

unfavorable

flexible budget variance= 

cost variance+ efficiency variance

actual DM cost=

actual price (AP) x actual quantity (AQ)

standard DM cost=

standard price (SP) x standard quantity (SQ)

actual DL cost=

actual price (AP) x actual quantity (AQ)

standard DL cost=

standard price (SP) x standard quantity (SQ)